Wes Moss: When Should You Lease vs Buy a Car?

I’ve got cars on the brain. For years, Audis have been a great fit for our family. My wife has an Audi Q7, which is a mid-sized SUV. We love the Q7 but we’ve outgrown it, so we are in the market for a new Family Truckster to haul around kids, dogs, strollers and vacation luggage.

So, I’ve recently revisited the buy versus lease debate.

I turned to a friend – Adam Goldfein, host of his own show on News/Talk WSB radio. Adam is one of the smartest guys on the planet when it comes to cars. You can read some of his stuff here (worst lease deals) and here (best lease deals). Adam says leasing is likely the best option if you meet the following criteria:

1. You have good credit. If your credit score is far south of 700, you likely won’t be able to get a lease – or at least a good deal on one. When you lease a car, the dealership is technically just lending you their car. They want to make sure you take care of it. They’ll generally lease only to people with solid credit scores. They figure these people are likeliest to take “good care” of the car.

2. You drive fewer than 15,000 miles a year. This is not always easy to do in the Atlanta area. If you live north of Atlanta and commute into Buckhead every day, you could easily rack up 25,000 miles in just one year. My wife can easily stay within the restriction. She may be the family chauffeur, but since both schools our children attend are within two miles of our house, nearly all our shopping is about a mile away and our gym, soccer fields and baseball fields are within three miles, she’s not putting that many miles on the car. In the three years she’s had the Q7, she has racked up less than 15,000 miles.

3. Your motto is “out with the old, in with the new.” If you like to change cars every three to four years, then leasing may be for you. Leasing is much less expensive than buying a new car, driving it for three years and then trading it in and buying a new one. If you are the kind of person who likes one car for the long run, you’re better off buying.

The best way to evaluate a lease is to calculate the “monthly cost per $10,000,” which should be below $150. Really “good deals” are lower than $130 per $10,000.

Here’s an example. I went to Honda’s website and looked at the 2013 Honda Accord Sedan CVT LX “lease special” and did the math to see how special it really is.

The offer is for $219/month for 36 months. The website indicates that $2,399 is due at signing. So you need to factor that figure into the cost. The calculation looks like this: 2399/36 = $66/month, then $219+$66 = $285/month.

Click on “See details” of the auto dealer’s website, and you can find the manufacturer’s suggested retail price (MSRP) for the car, which in this case equals $23,270.

Now, take $285 (your actual monthly total after you’ve factored in what’s due at signing) and divide by the MSPR. So, $285 divided by $23,270 gives you $122 per $10,000. And $122 is well under the $150 threshold, which makes this a sensible lease offer.

You should be able to do this exact same calculation on any vehicle you would consider leasing.

Beyond your monthly payment ($285 in this example), you should consider maintenance, repairs, gas and insurance. There should be little difference between the costs of these other variables when it comes to buying vs. leasing, at least over the first three or so years of a car’s life.

I think there’s a little bit of a stigma against leasing. You’ll hear people say, “I only buy my cars”, or “I would never lease” as if it’s a ridiculous option. Leasing certainly isn’t right for everyone, but if you meet the three criteria above it may be a much smarter financial decision than it gets credit for.